No injunctive relief for Medicare provider without exhaustion of administrative remedies

A Medicare provider cannot halt or interfere with the proscribed administrative review process by requesting injunctive relief in federal court. A district court granted CMS’s motion to dismiss a Medicare provider’s motion for preliminary injunction after finding that the provider did not exhaust all administrative remedies. The court further held that the exhaustion requirement exception for collateral constitutional claims does not apply where constitutional claims and the challenge to the agency’s decision are inextricably intertwined (Blue Valley Hospital, Inc. v. Azar, June 7, 2018, Robinson, J.).

Background. Blue Valley Hospital (BVH) is an acute care hospital that was certified by CMS in 2015 as a Medicare Program provider. In 2017, CMS issued a memo that set out non-exhaustive criteria used to evaluate the statutory standard of whether a facility is "primarily engaged" in inpatient care. An unannounced survey was conducted at BVH, which determined that BVH was operating an outpatient surgical center with little to no inpatient census. Because BVH did not meet the definition of "primarily engaged" in providing inpatient services and was out of compliance with one or more of the Conditions of Participation, CMS decided to terminate their Medicare provider agreement.

CMS issued a Noncompliance Notice to BVH which provided an opportunity to avoid termination by submitting a plan of correction within ten days. BVH submitted a plan of correction, however CMS determined that it lacked any specific dates as to when BVH would come into compliance and was "aspirational only." CMS then issued a final notice that it was terminating BVH’s provider agreement. BVH submitted additional documents and information to CMS and made numerous requests for CMS to reconsider its decision. However, CMS refused to reconsider or conduct another survey and terminated the provider agreement as scheduled.

BVH requested an expedited administrative appeal of the termination and filed and temporary restraining order and injunction enjoining CMS from terminating BVH’s Medicare participation rights pending the administrative process and any subsequent judicial review. BVH asserted a right to pre-termination hearing as well as arguments challenging the agency’s underlying rule-making process and lack of notice-and-comment. While the matter was pending review with the court, CMS postponed the date of termination to re-evaluate BVH. However, a new survey identified thirty-seven pages of deficiencies, including issues that directly affect patient care. CMS requested dismissal of the case for lack of subject matter jurisdiction.

Exhaustion. BVH argued that the administrative channeling and exhaustion requirements only apply to actions where the plaintiff seeks judicial review of the merits of a Medicare termination decision itself. BVH characterized its action as merely seeking a stay to preserve the status quo pending the administrative review process. The court held that this interpretation would effectively allow any party who wanted to stop a proposed agency action to simply seek injunctive relief in federal court, which would render the "strict administrative exhaustion requirement" a nullity.

The Supreme Court previously recognized an exception to the administrative channeling requirement "where it would not simply channel review through the agency, but would mean no review at all." BVH argued that termination of its provider agreement would force BVH to close due to lack of Medicare dollars, effectively foreclosing its financial ability to pursue administrative remedies and challenge CMS’s conduct. The court found that because BVH was explicitly entitled to administrative and judicial review of the agency’s decision, and because the harm to BVH was an isolated, delay-related harm, the exception did not apply.

Collateral claim. The "final decision" element of the exhaustion requirement may be deemed satisfied as to a claim where the plaintiff asserts a colorable constitutional claim that is collateral to the substantive issues of the administrative proceeding, exhaustion would result in irreparable harm, and exhaustion would be futile. For a cause of action to be entirely collateral, it must not be "the vehicle by which the plaintiff seeks to reverse" the agency decision, or seek an ultimate award of the benefits denied by the agency.

The court found that BVH’s request that the court halt the termination of its provider agreement while it challenges CMS’s decision on the same due process grounds, is evidence that the due process claim is inextricably intertwined with its substantive challenge to the termination decision. Further, BVH cannot meet its additional burden for stating a colorable constitutional claim. Medicare providers enjoy no constitutional right to a pre-termination hearing, and BVH received significant process up to the point of the hearing.

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